Federal Court’s Decision Could Allow Michigan Car Dealerships to Reopen
More than five years ago, three Jeep car dealerships were closed at the discretion of their parent company, Chrysler Group LLC. Now, these businesses could be allowed to reopen in light of a key victory the dealers won in a federal appeals court.
The 6th U.S. Circuit Court of Appeals recently found that a federal law, which created the arbitration process that allowed the dealers to successfully argue for a reopening, trumps a state law that would allow local competitors to challenge their return. The court also found that letters sent by the dealers to announce their return to the network had yet to be determined “customary and usual” letters from Chrysler to its dealers.
The case is debating a federal arbitration process that occurred in 2010, in which dealers were allowed to challenge Chrysler’s decision to terminate 789 dealerships as part of a bankruptcy reorganization procedure. This act reduced the company’s dealer count to around 2,400, but 32 dealers, including five in Michigan, won reinstatement in arbitration hearings. These Michigan dealerships included Livonia Chrysler Jeep Inc., Fox Hills Chrysler Jeep and Village Chrysler Jeep.
However, lawsuits over the meaning of this ruling soon followed. In Detroit, U.S. District Judge Sean Cox found that these dealers were not automatically entitled to reopen their businesses. He also determined that the federal arbitration laws did not supersede state dealer franchise laws in Michigan, Ohio, Nevada and several other states. This meant that the existence of a competing business in their market radius could prevent the prevailing dealers from reopening. For Michigan businesses, this zone was originally set at six miles, but has since been expanded to nine miles.
This extension proved problematic for the Livonia Chrysler Jeep dealership: in 2013, Crestwood Chrysler Dodge Jeep Ram was acquired by the Suburban Collection, putting a competing dealership within range. Additionally, Chrysler also extended the franchise agreement of a dealership near Village Chrysler Jeep during the original arbitration process. However, a panel of judges at the federal appeals court recently found that the federal law used in the arbitration preempts Michigan and Nevada state laws. This would allow the dealers to rejoin the dealership body as long as they satisfy the conditions originally stated in their letters of intent from Chrysler. The appeals court also decided that an arbitration victory did not give the dealers an unconditional right to reinstatement, but it would allow the prevailing dealers to meaningfully reincorporate themselves back into the network.
Currently, Fox Hills and Livonia Chrysler Jeep are closed, but Village Automotive has been selling used vehicles. Both the dealers and Chrysler seem to have taken the appeals courts’ decision as a sign of victory, with a spokesperson for Chrysler pointing out that the dealers only had access to a “customary and usual” letter of intent. Others, however, are viewing the verdict as one less obstacle in the dealers path to reinstatement. In light of the new competing businesses and other challenges before them, perhaps the Livonia, Fox Hills and Village Chrysler dealers should start brainstorming ways to promote their businesses if they are reinstated. A new sign might be a start: studies show that shoppers are three times more likely to look at billboards with motion than at static signs.